CASE 2/2016

Members:
P McDermott DP

Tribunal:
Administrative Appeals Tribunal, Brisbane

MEDIA NEUTRAL CITATION: [2016] AATA 264

Decision date: 27 April 2016

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Dr P McDermott RFD (Deputy President)

INTRODUCTION

1. Mr and Mrs TBCL ("the applicants") have each made an application to the Administrative Appeals Tribunal to review an objection decision in respect of a private ruling from the Commissioner of Taxation ("the Commissioner").

BACKGROUND

2. The applicants have been granted letters of administration of the estate of their son ("the son"). The son had lived with the applicants for all of his life except between 2007 and 2009 when he was undertaking studies interstate. Upon the completion of his studies he returned to live at the applicants' residence.

3. On 5 June 2013 the son was killed in a motorcycle accident. At the time of his death he was 22 years of age and was employed as a pilot. The superannuation scheme of the employer of the son included a life insurance policy. In May 2014 the insurer paid the sum of $500,000 to the applicants in their capacity as administrators of the estate of the son.

4. On 11 August 2014 the applicants made an application for a private ruling that the sum was not assessable income by virtue of the operation of s 302-60 of the Income Tax Assessment Act 1997 (Cth) ("ITAA97") because they were each a death benefits dependant of the son.

5. On 28 November 2014 the Commissioner issued a Notice of Private Ruling to each applicant containing a ruling that each applicant was not a death benefits dependant. On 16 January 2015 each applicant lodged an objection to the notice. On 17 February 2015 the Commissioner disallowed the objections. On 9 April 2015 each applicant lodged an application to the Administrative Appeals Tribunal for review of the objection decision. Both applications have been heard together.

TAXATION LEGISLATION

6. Section 302-60 of the ITAA97 provides that a superannuation lump sum received as a result of the death of a person of whom the recipient is a death benefits dependent is not assessable income nor is it exempt income.

7. A "death benefit dependant" is defined under s 302-195(1) of the ITAA97 as follows:

(1) A death benefits dependant, of a person who has died, is:

• (a) the deceased person's *spouse or former spouse; or
• (b) the deceased person's *child, aged less than 18; or
• (c) any other person with whom the deceased person had an interdependency relationship under section 302-200 just before he or she died; or
• (d) any other person who was a dependant of the deceased person just before he or she died.

8. Section 302-200 of the ITAA97 provides that an "interdependency relationship" is:

(1) Two persons (whether or not related by family) have an interdependency relationship under this section if:

• (a) they have a close personal relationship; and
• (b) they live together; and
• (c) one or each of them provides the other with financial support; and
• (d) one or each of them provides the other with domestic support and personal care.

(2) In addition, 2 persons (whether or not related by family) also have an interdependency relationship under this section if:

• (a) they have a close personal relationship; and
• (b) they do not satisfy one or more of the requirements of an interdependency relationship mentioned in paragraphs (1)(b), (c) and (d); and
• (c) the reason they do not satisfy those requirements is that either or both of them suffer from a physical, intellectual or psychiatric disability.

(3) The regulations may specify:

• (a) matters that are, or are not, to be taken into account in determining under subsection (1) or (2) whether 2 persons have an interdependency relationship under this section; and
• (b) circumstances in which 2 persons have, or do not have, an interdependency relationship under this section.

9. The Income Tax Assessment Regulations 1997 (Cth) ("ITAR97") provides matters to be taken into account in determining whether two persons have an interdependency relationship.

10. Regulation 302-200.01 of the ITAR97 provides as follows:

(1) For paragraph 302-200(3)(a) of the Act, this regulation sets out matters that are to be taken into account in determining whether 2 persons have an interdependency relationship.

(2) The matters are:

• (a) all of the circumstances of the relationship between the persons, including (where relevant):
  • (i) the duration of the relationship; and
  • (ii) whether or not a sexual relationship exists; and
  • (iii) the ownership, use and acquisition of property; and
  • (iv) the degree of mutual commitment to a shared life; and
  • (v) the care and support of children; and
  • (vi) the reputation and public aspects of the relationship; and
  • (vii) the degree of emotional support; and
  • (viii) the extent to which the relationship is one of mere convenience; and
  • (ix) any evidence suggesting that the parties intend the relationship to be permanent; and
• (b) the existence of a statutory declaration signed by 1 of the persons to the effect that the person is, or (in the case of a statutory declaration made after the end of the relationship) was, in an interdependency relationship with the other person.

11. Regulation 302-200.02 of the ITAR97 provides:

(1) For paragraph 302-200(3)(b) of the Act, this regulation sets out circumstances in which 2 persons have, or do not have, an interdependency relationship under section 302-200 of the Act.

(2) 2 persons have an interdependency relationship if:

• (a) they satisfy the requirements of paragraphs 302-200(1)(a) to (c) of the Act; and
• (b) 1 or each of them provides the other with support and care of a type and quality normally provided in a close personal relationship, rather than by a mere friend or flatmate.

Examples of care normally provided in a close personal relationship rather than by a friend or flatmate:

• 1 Significant care provided for the other person when he or she is unwell.
• 2 Significant care provided for the other person when he or she is suffering emotionally.

(3) 2 persons have an interdependency relationship if:

• (a) they have a close personal relationship; and
• (b) they do not satisfy the other requirements set out in subsection 302-200(1) of the Act; and
• (c) the reason they do not satisfy the other requirements is that they are temporarily living apart.

Example for paragraph (3)(c): One of the persons is temporarily working overseas or is in gaol.

(4) 2 persons have an interdependency relationship if:

• (a) they have a close personal relationship; and
• (b) they do not satisfy the other requirements set out in subsection 302-200(1) of the Act; and
• (c) the reason they do not satisfy the other requirements is that either or both of them suffer from a disability.

(5) No interdependency relationship 2 persons do not have an interdependency relationship if 1 of them provides domestic support and personal care to the other:

• (a) under an employment contract or a contract for services; or
• (b) on behalf of another person or organisation such as a government agency, a body corporate or a benevolent or charitable organisation.

CONSIDERATION

Private ruling

12. A private ruling is a written ruling on the way in which the Commissioner considers a relevant provision applies or would apply to a taxpayer in relation to a specified scheme.^[1] Taxation Administration Act 1953 (Cth) (“TAA53”) Sch 1, s 359-5(1). The Commissioner has a discretion as to whether or not to make a private ruling.^[2] Ibid. A private ruling is made on application by the taxpayer affected by a provision or their legal representative.^[3] See TAA53 Sch 1, ss 359-5(1), 359-10. A private ruling can address matters listed in s 357-55 of Sch 1 of the TAA53.^[4] TAA53 s 359-5(2). A private ruling "must identify the entity to whom it applies and specify the relevant scheme and the relevant provision to which it relates".^[5] See TAA53 Sch 1, s 359-20(2).

13. Each private ruling identifies each applicant as the entity to whom it applies.^[6] See TAA53 Sch 1, s 359-20(2).

14. The scheme to which each private ruling relates is identified by the following facts which are set out in the private ruling of each applicant:^[7] The name of each applicant and the son has been edited to preserve the confidentiality of the applicants.

• (i) A (the Deceased) died age 22 on 5 June 2013 in a motor bike accident.
• (ii) The Deceased, who was employed at the time of his death as a pilot, was the only child of B and C (your clients).
• (iii) The Deceased, up to the time of his death, lived at home with your clients for most of his life.
• (iv) The only time that the Deceased did not live with your clients was during a two year period between 2007 and 2009. During this period the Deceased lived in Melbourne while he completed his pilot's course at Swinburne University.
• (v) Your clients paid $40,000 towards the total cost of the Deceased's course, accommodation of $250 per week and living expenses of $1,000 per month while he lived in Melbourne.
• (vi) Over the years your clients bought the Deceased various items and paid for expenses which included, amongst other items, a computer, TV, pilot's gear and a motor vehicle.
• (vii) The Deceased also paid various expenses for your clients.
• (viii) At the time of the Deceased's death, the three members of the household (your clients and the Deceased) shared their living expenses (such as $350 per week for food, $850 for electricity per quarter, council rates of $3,000 per year and water charges of $1,600 per year) equally.
• (ix) Your clients provided the Deceased with domestic support in the form of preparing meals, doing laundry, cleaning, and a number of other tasks for the Deceased. In turn the Deceased helped your clients by performing tasks around the house.
• (x) In relation to personal care, your clients and the Deceased provided each other with love, care affection and psychological assistance.
• (xi) At the time of the Deceased's death, your clients had just begun to convert their garage into a private living space for him. Approximately $1,000 was spent on the conversion prior to the Deceased's death and at least a further $7,000 was spent after the Deceased's death as work had already commenced and needed to be completed.
• (xii) TAL Superannuation and Insurance Fund paid a benefit $500,000 to the Deceased's Estate in May 2014.

15. The relevant provisions which are identified in the private ruling of each applicant are:^[8] Exhibit A: T-documents. T7: Notice of private ruling dated 28 November 2014.

• • Income Tax Assessment Act 1997 (Cth) ss 302-195, 302-200, 302-200(1), 302-200(1)(a), 302-200(1)(b), 302-200(1)(c), 302-200(1)(d) and 302-200(2); and
• • Income Tax Assessment Regulations 1997 (Cth) subreg 302-200.01(2).

Function of Tribunal

16. Section s 14ZZK(b)(ii) of the TAA53 provides that the applicants bear the burden of proof to establish that the private ruling should have been made differently. The Tribunal is confined to a consideration of the stated facts in the "scheme" which is identified in the private ruling in reviewing an objection decision upon a private ruling.

17. The reasons of Logan J in
Rosgoe Pty Ltd v Commissioner of Taxation [2015] FCA 1231 and Deputy President Alpins in
Re Cooper Bros Holdings Pty Ltd and Commissioner of Taxation (2013) 59 AAR 165 reviewed a number of decisions of the Federal Court of Australia under the former provisions in the TAA53 prior to their migration to Schedule 1 to that Act and the present legislative regime. Those decisions emphasise that the role of this Tribunal in reviewing an objection decision regarding a private ruling is confined to reviewing the correctness of the ruling premised on the specified scheme in the private ruling.

18. In
Rosgoe Pty Ltd v Commissioner of Taxation [2015] FCA 1231 Logan J explained at [12]:

On a review of an objection decision in respect of a private ruling , the Tribunal is not permitted to redefine the "arrangement" as stated by the Commissioner in his ruling. Put another way, the Tribunal may not itself engage in a fact finding exercise. Rather, the Tribunal must form its own view as to how a taxation law applies to an arrangement it takes as a given.

19. In
Re Cooper Bros Holdings Pty Ltd and Commissioner of Taxation (2013) 59 AAR 165 at 169, Deputy President Alpins explained the function of the Tribunal in reviewing an objection decision upon a private ruling:

The Tribunal can only consider the stated facts comprising the scheme the subject of the ruling. Furthermore, the Tribunal cannot "redefine" the scheme (see
Commissioner of Taxation v McMahon (1997) 79 FCR 127 at 133, 141, 144-146, 150) - the Tribunal is confined by the scheme as it has been described in the ruling and cannot depart from that description in any respect. The Tribunal cannot create its own description of the scheme, elaborate upon or make assumptions about the scheme, nor can the Tribunal add further facts, substitute other facts or otherwise alter the scheme (McMahon^[9] Federal Commissioner of Taxation v McMahon and Another (1997) 79 FCR 127 . at 133-134, 140-146, 149-150;
Bellinz v Federal Commissioner of Taxation (1998) 84 FCR 154 at 160; Reef Networks^[10] Federal Commissioner of Taxation v Reef Networks Pty Ltd (2004) 57 ATR 375 . at [6]; Lamont^[11] Lamont v Federal Commissioner of Taxation (2005) 144 FCR 312 . at [21], [26]; Hastie Group^[12] Hastie Group Ltd v Commissioner of Taxation (2008) 172 FCR 496 . at [3]; Cooperative Bulk Handling^[13] Cooperative Bulk Handling Ltd v Federal Commissioner of Taxation [2010] FCA 508 . at [16]).

20. Section 359-65 of Schedule 1 to the TAA53 deals with the circumstances in which, for the purpose of an objection decision, the Commissioner may have regard to additional information not considered by the Commissioner when he made the private ruling. This Tribunal is vested with the authority of the Commissioner under s 359-65 of to the TAA53 by virtue of the operation of s 43(1) of the Administrative Appeals Tribunal Act 1975 (Cth) which provides that "the Tribunal may exercise all the powers and discretions that are conferred by any relevant enactment on the person who made the decision".^[14] See also, Shi v Migration Agents Registration Authority (2008) 235 CLR 286 at 297–298 per Kirby J and at 315 per Hayne and Heydon JJ. This Tribunal may exercise the discretion which is vested in the Commissioner under s 359-65 of the TAA53.

21. Section 359-65 does not permit this Tribunal to redefine the scheme.^[15] See Re Cooper Bros Holdings Pty Ltd and Commissioner of Taxation (2013) 59 AAR 165 ; The Public Servant and Federal Commissioner of Taxation (2014) 97 ATR 135 at 149; Senior and Commissioner of Taxation [2015] AATA 353 at [34]. This Tribunal should only consider additional information to the extent that it bears upon the correctness of the ruling in issue.^[16] See Re Cooper Bros Holdings Pty Ltd and Commissioner of Taxation (2013) 59 AAR 165 at 179 at [48]–[49]. In issuing a private ruling the Commissioner and this Tribunal does not necessarily accept the accuracy of the factual substratum underpinning the scheme in a private ruling.

22.

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The applicants in their post-hearing submissions have contended that the Tribunal should in effect made a finding that, on the balance of probabilities, the applicants and their son were in an interdependency relationship. However, it is settled that this Tribunal cannot find facts when reviewing an objection decision upon a private ruling.^[17] See Cooperative Bulk Holding Ltd v Commissioner of Taxation (2010) 79 ATR 582 at 587; The Public Servant and Federal Commissioner of Taxation (2014) 97 ATR 135 at 149; and Rosgoe Pty Ltd v Commissioner of Taxation [2015] FCA 1231 at [12].

Interdependency relationship

23. It is necessary for each applicant to have an interdependency relationship under s 302-200 of the ITAA97 immediately before their son died for each applicant to be a "death benefits dependant" under s 302-195(1)(c) of the ITAA97.

24. In interpreting s 302-200 of the ITAA97 I am required to have regard to reg 302-200.01 of the ITAR97. Section 302-200(3)(a) of the ITAA97 provides that the regulations may specify "matters that are, or are not, to be taken into account in determining under subsection (1) or (2) whether 2 persons have an interdependency relationship" under the section.

25. I will consider the matters specified in reg 302-200.01(2) of the ITAR97 in order to determine whether the facts comprising the scheme indicate that there was an interdependency relationship between the applicants and their son just before their son died.

26. The facts comprising the scheme contain an assertion that the son lived with the applicants for most of his life. I do not consider that "the duration of the relationship"^[18] ITAR97 reg 302-200.01(2)(a). of itself points to an interdependency relationship.

27. The matter specified in reg 302-200.01(2)(a)(ii) of the ITAR97 has no application to the relationship between each applicant and the son.

28. One matter that has to be considered in examining the facts comprising the scheme is "the ownership, use and acquisition of property".^[19] Ibid reg 302-200.01(2)(iii). The reference in those facts to "their garage" may fairly be interpreted as indicating ownership by the applicants of the home in which the garage is located. The facts related to the "use" of property are that the son lived in the home of the applicants. The facts contain an assertion that at the time of the death of the son the applicants had just begun to convert the garage into a private living space. The reference to "use" in reg 302-200.01(2)(a)(iii) of the ITAR97 requires consideration of the actual use of property just before the son died. That is the time under s 302-195(1) of the ITAA97 when there must be the existence of an interdependency relationship and so the intended use of the garage is not within the ambit of reg 302-200.01(2)(a)(iii). The facts do not refer to any "acquisition" of property. My consideration of "the ownership, use and acquisition of property" does not indicate an interdependency relationship.

29. The facts comprising the scheme are not indicative of "a mutual commitment to a shared life" between the applicants and their son as is required under reg 302-200.01(2)(a)(iv). There is certainly no assertion of a "mutual commitment to a shared life" in the facts comprising the scheme or that the son and applicants ever made such a mutual commitment.

30. The facts comprising the scheme do not raise for consideration whether there was "the care and support of children"^[20] See ITAR97 reg 302-200.01(2)(a)(v). as those facts do not contain any assertion in that regard.

31. The facts comprising the scheme do not refer to any "reputation and public aspects of the relationship".^[21] See ITAR97 reg 302-200.01(2)(a)(vi).

32. I have to consider whether the facts comprising the scheme refer to "the degree of emotional support".^[22] See ITAR97 reg 302-200.01(2)(vii). While there is an assertion of "emotional support", the assertion does not outline "the degree of emotional support"^[23] See ITAR97 reg 302-200.01(2)(a)(vii). nor does the assertion refer to any individual instances of emotional support. These facts do not indicate that there was an interdependency relationship.

33. The facts comprising the scheme do not contain any assertion as to "the extent to which the relationship is one of mere convenience".^[24] See ITAR97 reg 200.01(2)(a)(viii).

34. The facts comprising the scheme do not refer to "any evidence suggesting that the parties intend the relationship to be permanent".^[25] See ITAR97 reg 302-200.01(2)(a)(ix).

35. I have therefore concluded after my consideration of the matters that are specified in reg 302-200.01(3) of the ITAR97 that the facts considered in the scheme do not indicate an

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interdependency relationship. Under s 302-200(3)(a) of the ITAA97 those matters are required to be taken into account by a decision-maker.

36. The matters that are outlined in reg 302-200.01(2) are not expressed to be exhaustive. One matter that was pressed by the applicants was the conversion of the garage. While there is an assertion of the intended future use of the garage as a "private living space" for the son, this does not in my opinion indicate an interdependency relationship.

Close personal relationship

37. One of the matters that must be established by each applicant is a "close personal relationship".^[26] Income Tax Assessment Act 1997 (Cth) s 302-200(1)(a). The facts comprising the scheme do not contain an assertion of such a relationship. The reference in those facts to domestic support does indicate such a requirement. The reference to "love, care, affection and psychological assistance" does not refer to any facts which provide a basis for any indication that there was such a relationship.

Shared residence

38. The facts comprising the scheme contain an assertion that the applicants lived with the son and thereby satisfy s 302-200(1)(b) of the ITAA97.

Financial support

39. The facts comprising the scheme contain an assertion that the son provided the applicants with financial support and thereby satisfies s 302-200(1)(c) of the ITAA97.

Domestic support and personal care

40. For there to an interdependency relationship between each applicant and the son, there is a requirement under s 302-200(1)(d) of the ITAA97 for there to be both "domestic support" as well as "personal care". This is because the conjunction "and" in this provision indicates that both requirements must be met. The Commissioner accepts that the facts comprising the scheme satisfy the requirement that the applicants and their son provided domestic support to one another. However, I also have to consider whether each applicant was provided personal care by the son or whether the son provided personal care to each applicant. This is because there is an essential requirement that "one or each of them provides the other with domestic support and personal care"^[27] See ITAA97 s 302-200(1)(d). for parties to have an interdependency relationship.

41. The facts comprising the scheme refers to the following facts in relation to "personal care":

In relation to personal care, your clients and the Deceased provided each other with love, care affection and psychological assistance.

42. In determining the nature of "personal care" in s 302-200(1)(c) of the ITAA97 it is necessary to consider whether the facts in the private ruling satisfy the requirement in reg 302-200.02 that "1 or each of them provides the other with support and care of a type and quality normally provided in a close personal relationship, rather than by a mere friend or flatmate". The facts comprising the scheme are insufficient to indicate that each of the applicants and their son (who was employed as a pilot) provided each other with "personal care" in terms of the examples that are provided in reg 302-200.02(2) which refer to "significant care" when a person is unwell or suffering emotionally. The facts comprising the scheme do not contain any assertion of "significant care" having been provided.

Correctness of private ruling

43. The Commissioner's private ruling is correct as the "facts" comprising the scheme do not satisfy the essential requirements of an interdependency relationship under s 302-200(1)(a) and s 302-200(1)(d) of the ITAA97. The "facts" do not satisfy the requirement of an interdependency relationship under s 302-195(1)(c) of the ITAA97. A consideration of the facts comprising the scheme does not satisfy any of the matters in regs 302-200(1)(a) and 302-200(2) of the ITAR97 to indicate an interdependency relationship between each applicant and the son. For the sake of completeness I should record that the facts comprising the scheme do not indicate an interdependency relationship under s 302-200(2) of the ITAA97.

Additional information

44. The applicants have relied upon their statutory declaration which was made on 11 September 2015 and a statement made by the

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proprietor of a restaurant ("the additional information"). The additional information was not provided to the Commissioner before the objections decisions were made.^[28] The additional information was tendered at the hearing. I do not consider it appropriate to exercise the discretion under s 359-65 in Sch 1 to the TAA53 to have regard to this material because it is settled by decisions of this Tribunal that s 359-65 does not permit this Tribunal to redefine the scheme.^[29] See The Public Servant and Federal Commissioner of Taxation (2014) 97 ATR 135 at 149; Senior and Commissioner of Taxation [2015] AATA 353 at [34]. The additional information refers to matters such as the assertion of a close personal relationship, the provision of physical and emotional care, that the relationship was more than one of convenience, as well as public aspects of the relationships. These assertions are not found in the facts comprising the scheme and to have regard to this additional information would mean that this Tribunal would, to use the words of Lockhart J in
Federal Commissioner of Taxation v McMahon (1997) 79 FCR 127 at 133, "travel beyond those facts as identified in the ruling".

CONCLUSION

45. The additional information is "materially different" from the scheme to which the private ruling relations because, as I have previously identified, there are a number of matters asserted in the additional information that are not contained in the facts comprising the scheme. Under the legislative scheme relating to private rulings, s 359-65(3)(a) of the TAA53 requires the Commissioner to request the applicants to make an application for another private ruling. Had the Commissioner been provided with the additional information before the objection decision was made, the Commissioner would have requested the applicants to make an application for another private ruling pursuant to s 359-65(3)(a) of the TAA. Whilst this Tribunal may make such a request it is administratively convenient for these applications to be remitted to the Commissioner to make the request. The applicants could then consider whether to make any further applications for a private ruling. While I consider that the private ruling is correct, it is not appropriate to make an order to affirm the objection decision as under the legislative scheme the objection decision is taken not to have been made.^[30] See TAA53 s 359-65(3)(b).

DECISION

46. The application is remitted to the Commissioner to request the applicants to make another application for a private ruling in accordance with these reasons.